The Federal Reserve announced Thursday that, in an effort to re-ignite economic recovery, it was taking aim at mortgage rates — a move that will likely take rates even lower from their current record lows.

The Federal Reserve announced it will purchase $40 billion of mortgage-backed securities that will help boost the recovery in the housing market. What’s more, the central bank said that it will continue with the purchase program until the economy shows greater improvement, particularly with unemployment.

"These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative," according to the Fed in a public statement.

The Fed says the economy still has a long way to go toward recovery. The Fed predicts the jobless rate will stay above 7 percent well into 2014 and that economic growth will remain slow in the coming months.

At its Thursday meeting, the Fed left its funds rate unchanged at near-zero, but announced the rate — which has a bearing on mortgages — would remain at "exceptionally low levels" until at least mid-2015.

As mortgage rates sink lower, home shoppers have been taking advantage. The Mortgage Bankers Association announced this week that mortgage applications for home purchases were up 8.1 percent for the week ending Sept. 7. Mortgage applications for purchases also were up 7 percent from year-ago levels, MBA said.

"While low interest rates impose some costs, Americans will ultimately benefit most from the healthy and growing economy that low interest rates promote," Fed Chairman Ben Bernanke said Thursday following the Fed committee’s meeting.

Source: “Fed Pulls Trigger, to Buy Mortgages in Effort to Lower Rates,” CNBC (Sept. 13, 2012)

A recent report from the National Association of Realtors shows that existing home sales dipped slightly in February, partially due to winter storms.

Existing home sales went down 0.6 percent across the nation. At an annual rate, existing home sales were reported at 5.02 million for February, compared to the 5.05 million reported during the first month of the year.

Though sales were down on a month-to-month basis, they were still up 7 percent when compared to levels seen in February 2008. Lawrence Yun, chief economist for the NAR, said that the decline in February was partially attributable to the rough weather seen in a number of areas in the country.

And though sales were up on a year-to-year basis and housing prices appear to be stabilizing, Yun said that a recovery in the industry is still "fragile at the moment."

One key may be a government tax credit that gives first time homebuyers up to $8,000 for the purchase of a property. The credit can also be received by repeat purchasers, though the cap on it is $6,500.

In order to take advantage of the credit, consumers must come to an agreement on a home purchase by April 30 and close by the end of June.

"If we see a surge in home buying comparable to last fall in the months leading up to the original tax credit deadline, then enough inventory should be absorbed to ensure a broad home price stabilization," Yun said.

Another factor that could play into the housing recovery is how mortgage rates react to the end of a Federal Reserve Board program that purchased mortgage-backed securities. The end of that effort comes as March closes, with some analysts thinking it will lead to an increased in home loan rates.

Source: http://www.credit.com/news/housing-market/2010-03-25/tax-credit-for-first-time-homebuyers-could-prove-important-as-sales-decline-in-february.html